Europe

27 Statistics About The European Economic Crisis That Are Almost Too Crazy To Believe

The economic crisis in Europe continues to get worse and eventually it is going to unravel into a complete economic nightmare.  All over Europe, national governments have piled up debts that are completely unsustainable.  But whenever they start significantly cutting government spending it results in an economic slowdown.  So politicians in Europe are really caught between a rock and a hard place.  They can’t keep racking up these unsustainable debts, but if they continue to cut government spending it is going to push their economies into deep recession and their populations will riot.  Greece is a perfect example of this.  Greece has been going down the austerity road for several years now and they are experiencing a full-blown economic depression, riots have become a way of life in that country and their national budget is still not anywhere close to balanced.  Americans should pay close attention to what is going on in Europe, because this is what it looks like when a debt party ends.  Most of the nations in the eurozone have just started implementing austerity, and yet unemployment in the eurozone is already the highest it has been since the euro was introduced.  It has risen for 10 months in a row and is now up to 10.8 percent.  Sadly, it is going to go even higher.  As economies across Europe slide into recession, that is going to put even more pressure on the European financial system.  Most Americans do not realize this, but the European banking system is absolutely enormous.  It is nearly four times the size that the U.S. banking system is.  When the European banking system crashes (and it will) it is going to reverberate around the globe.  The epicenter of the next great financial crisis is going to be in Europe, and it is getting closer with each passing day.

The following are 27 statistics about the European economic crisis that are almost too crazy to believe….

Greece

#1 The Greek economy shrank by 6 percent during 2011, and it has been shrinking for five years in a row.

#2 The average unemployment rate in Greece in 2010 was 12.5 percent.  During 2011, the average unemployment rate was 17.3 percent, and now the unemployment rate in Greece is up to 21.8 percent.

#3 The youth unemployment rate in Greece is now over 50 percent.

#4 The unemployment rate in the port town is Perama is about 60 percent.

#5 In Greece, 20 percent of all retail stores have closed down during the economic crisis.

#6 Greece now has a debt to GDP ratio of approximately 160 percent.

#7 Some of the austerity measures that have been implemented in Greece have been absolutely brutal.  For example, Greek civil servants have had their incomes slashed by about 40 percent since 2010.

#8 Despite all of the austerity measures, it is being projected that Greece will still have a budget deficit equivalent to 7 percent of GDP in 2012.

#9 Greece is still facing unfunded liabilities in future years that are equivalent to approximately 800 percent of GDP.

#10 In the midst of all the poverty in Greece, several serious diseases are making a major comeback.  The following comes from a recent article in the Guardian….

The incidence of HIV/Aids among intravenous drug users in central Athens soared by 1,250% in the first 10 months of 2011 compared with the same period the previous year, according to the head of Médecins sans Frontières Greece, while malaria is becoming endemic in the south for the first time since the rule of the colonels, which ended in the 1970s.

Spain

#11 The unemployment rate in Spain is now up to 23.6 percent.

#12 The youth unemployment rate in Spain is now over 50 percent.

#13 The total value of all toxic loans in Spain is equivalent to approximately 13 percent of Spanish GDP.

#14 The GDP of Spain is about 1.4 trillion dollars.  The three largest Spanish banks have approximately 2.7 trillion dollars in assets and they are all on the verge of failing.

#15 Home prices in Spain fell by 11.2 percent during 2011.

#16 The number of property repossessions in Spain rose by 32 percent during 2011.

#17 The ratio of government debt to GDP in Spain will rise by more than 11 percent during 2012.

#18 On top of everything else, Spain is dealing with the worst drought it has seen in 70 years.

Portugal

#19 The unemployment rate in Portugal is up to 15 percent.

#20 The youth unemployment rate in Portugal is now over 35 percent.

#21 Banks in Portugal borrowed a record 56.3 billion euros from the European Central Bank in March.

#22 It is being projected that the Portuguese economy will shrink by 5.7 percent during 2012.

#23 When you add up all forms of debt in Portugal (government, business and consumer) the total is equivalent to approximately 360 percent of GDP.

Italy

#24 Youth unemployment in Italy is up to 31.9 percent – the highest level ever.

#25 Italy’s national debt is approximately 2.7 times larger than the national debts of Greece, Ireland and Portugal put together.

#26 If you add the maturing debt that the Italian government must roll over in 2012 to the projected budget deficit, it comes to approximately 23.1 percent of Italy’s GDP.

#27 Italy now has a debt to GDP ratio of approximately 120 percent.

So why hasn’t Europe crashed already?

Well, the powers that be are pulling out all their tricks.

For example, the European Central Bank decided to start loaning gigantic mountains of money to European banks.  That accomplished two things….

1) It kept those European banks from collapsing.

2) European banks used that money to buy up sovereign bonds and that kept interest rates down.

Unfortunately, all of this game playing has also put the European Central Bank in a very vulnerable position.

The balance sheet of the European Central Bank has expanded by more than 1 trillion dollars over the past nine months.  The balance sheet of the European Central Bank is now larger than the entire GDP of Germany and the ECB is now leveraged 36 to 1.

So just how far can you stretch the rubberband before it snaps?

Perhaps we are about to find out.

The European financial system is leveraged like crazy right now.  Even banking systems in countries that you think of as “stable” are leveraged to extremes.

For example, major German banks are leveraged 32 to 1, and those banks are holding a massive amount of European sovereign debt.

When Lehman Brothers finally collapsed, it was only leveraged 30 to 1.

You can’t solve a debt crisis with more debt.  But the European Central Bank has been able to use more debt to kick the can down the road a few more months.

At some point the sovereign debt bubble is going to burst.

All financial bubbles eventually burst.

What goes up must come down.

Right now, the major industrialized nations of the world are approximately 55 trillion dollars in debt.

It has been a fun ride, but this fraudulent pyramid of risk, debt and leverage is going to come crashing down at some point.

It is only a matter of time.

Already, there are a whole bunch of signs that some very serious economic trouble is on the horizon.

Hopefully we still have a few more months until it hits.

But in this day and age nothing is guaranteed.

What does seem abundantly clear is that the current global financial system is inevitably going to fail.

When it does, what “solutions” will our leaders try to impose upon us?

That is something to think about.

11 Reasons Why America Would Be A Better Place Without Goldman Sachs

Would America be a better place without Goldman Sachs?  Of course it would.  The “vampire squid” of Wall Street does not care about the future of America.  Sadly, Goldman Sachs apparently does not even care much about their own clients.  What Goldman Sachs is all about is making as much money as humanly possible.  In the end, there is nothing wrong with making money, but there are constructive ways to make money and there are destructive ways to make money.  Unfortunately, Goldman Sachs seems to find the destructive path almost irresistible.  Greg Smith, the head of the U.S. equity derivatives business for Goldman Sachs in Europe, the Middle East and Africa made headlines all over the world on Wednesday when he resigned publicly from Goldman Sachs in a scorching editorial in the New York Times.  Smith said that he could “honestly say that the environment now is as toxic and destructive as I have ever seen it”.  Considering what we know has gone on at Goldman over the past decade, that is very frightening to hear.  So could this be the beginning of the end for Goldman Sachs?  And if it is, will America be a better place when Goldman is gone?

You would think that at some point clients of Goldman would become so sick and tired of the stories of corruption coming out of the firm that they would simply walk away.

Unfortunately, corruption is so endemic on Wall Street that Goldman Sachs really does not seem out of place.  The truth is that a lot of the things that are said about Goldman could also be said about JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley.

But in recent years Goldman Sachs has truly become a national symbol of what is wrong with our financial system.  As the American people become fed up with institutions such as Goldman, hopefully we will start to see some of them disappear.

The following are 11 reasons why America would be a better place without Goldman Sachs….

#1 Even after all of the negative publicity we have seen in recent years, Goldman Sachs appears to not have learned any lessons.  The following is how Greg Smith described the three ways to get ahead at Goldman Sachs….

“What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.”

#2 Goldman Sachs is one of the too big to fail banks and those banks just keeping getting bigger than ever.  Back in 2002, the top 10 U.S. banks controlled 55 percent of all U.S. banking assets.  Today, the top 10 U.S. banks control 77 percent of all U.S. banking assets.  So if we couldn’t afford to let them fail back in 2008 because they were so big, why did we allow them to become even larger?

#3 The Federal Reserve shows great favoritism to big Wall Street banks such as Goldman Sachs.  For example, between December 1, 2007 and July 21, 2010 the Federal Reserve made 814 billion dollars in secret loans to Goldman Sachs.

#4 Goldman Sachs is at the heart of the derivatives bubble that threatens to throw the entire global financial system into chaos.  At this point, Goldman Sachs has over 53 trillion dollars of exposure to derivatives.

According to the New York Times, the big Wall Street banks completely control derivatives trading.  In fact, the New York Times says that representatives from JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup hold a secretive meeting each month to coordinate their domination over the derivatives market….

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

#5 Goldman Sachs was at the very heart of the financial crisis of 2008 which plunged the entire global economy into a very deep recession.  In the years leading up to the financial crisis of 2008, Goldman Sachs was putting together mortgage-backed securities that they knew were garbage and they marketed them to investors as AAA-rated investments.  On top of that, Goldman then often made huge bets against those exact same securities which turned out to be extremely profitable when those securities crashed and burned.

The following is how the New York Times described what was going on at the time….

“Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc.”

Sylvain Raynes, an expert in structured finance at R & R Consulting in New York, said at the time that he was absolutely shocked by what Goldman was doing….

“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen”

#6 Goldman Sachs played a huge role in getting Greece, Italy and several other European nations into so much debt.  The following is an excerpt from an article by Andrew Gavin Marshall….

In the same way that homeowners take out a second mortgage to pay off their credit card debt, Goldman Sachs and JP Morgan Chase and other U.S. banks helped push government debt far into the future through the derivatives market. This was done in Greece, Italy, and likely several other euro-zone countries as well. In several dozen deals in Europe, “banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books.” Because the deals are not listed as loans, they are not listed as debt (liabilities), and so the true debt of Greece and other euro-zone countries was and likely to a large degree remains hidden. Greece effectively mortgaged its airports and highways to the major banks in order to get cash up-front and keep the loans off the books, classifying them as transactions.

#7 Goldman Sachs is working very hard to help state and local governments sell off our highways, water treatment plants, libraries, parking meters, airports and power plants to the highest bidder.  Much of the time foreigners are the highest bidders for these precious infrastructure assets.

The following is how Dylan Ratigan described what is going on….

On Wall Street, setting up and running “Infrastructure Funds” is big business, with over $140 billion run by such banks as Goldman Sachs, Morgan Stanley, and Australian infrastructure specialist Macquarie. Goldman’s 2010 SEC filing should give you some sense of the scope of the campaign. Goldman says it will be involved with “ownership and operation of public services, such as airports, toll roads and shipping ports, as well as power generation facilities, physical commodities and other commodities infrastructure components, both within and outside the United States.” While the bank sees increased opportunity in “distressed assets” (ie. Cities and states gone broke because of the financial crisis), the bank also recognizes “reputational concerns with the manner in which these assets are being operated or held.”

#8 At the same time that Goldman Sachs is causing all sorts of trouble for everyone else, their employees are making crazy amounts of money.  During 2010, employees of Goldman Sachs brought in more than 15 billion dollars in total compensation.

#9 Goldman Sachs has way too much influence over the federal government.  There is a reason why it is commonly referred to as “Government Sachs”.  No matter who is the White House, people that used to work for Goldman and other big Wall Street banks always seem to be crawling around.

Last year, Michael Brenner wrote the following about the composition of the Obama administration….

Wall Street’s takeover of the Obama administration is now complete. The mega-banks and their corporate allies control every economic policy position of consequence. Mr. Obama has moved rapidly since the November debacle to install business people where it counts most. Mr.William Daley from JP Morgan Chase as White House Chief of Staff. Mr. Gene Sperling from the Goldman Sachs payroll to be director of the National Economic Council. Eileen Rominger from Goldman Sachs named director of the SEC’s Investment Management division. Even the National Security Advisor, Thomas Donilon, was executive vice president for law and policy at the disgraced Fannie Mae after serving as a corporate lobbyist with O’Melveny & Roberts. The keystone of the business friendly team was put in place on Friday. General Electric Chairman and CEO Jeffrey Immelt will serve as chair of the president’s Council on Jobs and Competitiveness.

#10 Employees from Goldman Sachs pour way too much money into our national elections.  In 2008, donations from individuals and organizations affiliated with Goldman Sachs donated more than a million dollars to Barack Obama.  This time around they are pouring huge amounts of cash into Mitt Romney’s campaign.

#11 Goldman Sachs is still a “vampire squid” as Matt Taibbi once so famously proclaimed in Rolling Stone….

“The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates.”

Once again, there is nothing wrong with making money.

And there is certainly nothing wrong with working in the financial system.

But there is a right way to do things and there is a wrong way to do things.

Goldman Sachs is doing things very much the wrong way, and America would be a better place without them.

Why Is Global Shipping Slowing Down So Dramatically?

If the global economy is not heading for a recession, then why is global shipping slowing down so dramatically?  Many economists believe that measures of global shipping such as the Baltic Dry Index are leading economic indicators.  In other words, they change before the overall economic picture changes.  For example, back in early 2008 the Baltic Dry Index began falling dramatically.  There were those that warned that such a rapid decline in the Baltic Dry Index meant that a significant recession was coming, and it turned out that they were right.  Well, the Baltic Dry Index is falling very rapidly once again.  In fact, on February 3rd the Baltic Dry Index reached a low that had not been seen since August 1986.  Some economists say that there are unique reasons for this (there are too many ships, etc.), but when you add this to all of the other indicators that Europe is heading into a recession, a very frightening picture emerges.  We appear to be staring a global economic slowdown right in the face, and we all need to start getting prepared for that.

If you don’t read about economics much, you might not know what the Baltic Dry Index actually is.

Investopedia defines the Baltic Dry Index this way….

A shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea.

When the global economy is booming, the demand for shipping tends to go up.  When the global economy is slowing down, the demand for shipping tends to decline.

And right now, global shipping is slowing way, way down.

In fact, recently there have been reports of negative shipping rates.

According to a recent Bloomberg article, one company recently booked a ship at the ridiculous rate of negative $2,000 a day….

Glencore International Plc paid nothing to hire a dry-bulk ship with the vessel’s operator paying $2,000 a day of the trader’s fuel costs after freight rates plunged to all-time lows.

Glencore chartered the vessel, operated by Global Maritime Investments Ltd., a Cyprus-based company with offices in London, Steve Rodley, GMI’s U.K. managing director, said by phone today. The daily payments last the first 60 days of the charter, Rodley said. The vessel will haul a cargo of grains to Europe, putting the carrier in a better position for its next shipment, he said.

So why would anyone agree to ship goods at negative rates?

Well, it beats the alternative.

This was explained in a recent Fox Business article….

“They’re doing this because you can’t just have ships sitting. If they sit too long, then that’s hard on the ships. They have to keep them loaded and moving from port to port,” said Darin Newsom, senior commodities analyst at DTN.

If the owner of a ship can get someone to at least pay for part of the fuel and the journey will get the ship closer to its next destination, then that is better than having the ship just sit there.

But just a few short years ago (before the last recession) negative shipping rates would have been unthinkable.

Asian shipping is really slowing down as well.  The following comes from a recent article in the Telegraph….

Shanghai shipping volumes contracted sharply in January as Europe’s debt crisis curbed demand for Asian goods, stoking fresh doubts about the strength of the Chinese economy.

Container traffic through the Port of Shanghai in January fell by more than a million tons from a year earlier.

So this is something we are seeing all over the globe.

Another indicator that is troubling economists right now is petroleum usage.  It turns out that petroleum usage is really starting to slow down as well.

The following is an excerpt from a recent article posted on Mish’s Global Economic Trend Analysis….

As I have been telling you recently, there is some unprecedented data coming out in petroleum distillates, and they slap me in the face and tell me we have some very bad economic trends going on, totally out of line with such things as the hopium market – I mean stock market.

This past week I actually had to reformat my graphs as the drop off peak exceeded my bottom number for reporting off peak – a drop of ALMOST 4,000,000 BARRELS PER DAY off the peak usage in our past for this week of the year.

I would encourage you to go check out the charts that were posted in that article.  You can find them right here.  Often a picture is worth a thousand words, and those charts are quite frightening.

Over the past few days, I have been trying to make the point that nothing got fixed after the financial crisis of 2008 and that an even bigger crisis is on the way.

Yes, the stock market is flying high right now.

Yes, even “Dr. Doom” Nouriel Roubini is convinced that the stock market will go even higher.

But this rally will not last that much longer.

Wherever you look, global economic activity is slowing down.  The UK economy and the German economy both actually shrank a bit in the fourth quarter of 2011.  About half of all global trade involves Europe in one form or another.  As Europe slows down, it is going to affect the entire planet.

Many thought that the German economy was so strong that it would not be significantly affected by the problems the rest of Europe is having, but that is turning out not to be the case.

In a new article by CBS News entitled “German economic slowdown worse than expected?“, we are told that industrial production in Germany is declining even more than anticipated….

German industrial production fell 2.9 percent in December from the month before, according to official data released Tuesday, suggesting the country’s economic slowdown could be worse than expected.

So don’t believe all the recent hype about an “economic recovery”.  Europe is heading into a recession, Asia is slowing down and the U.S. will not be immune.

Despite what you hear from the mainstream media, the truth is that the U.S. economy is not improving and incredibly tough times are ahead.

Thankfully, those of us that are aware of what is happening can make preparations for the economic storm that is coming.

Others will not be so fortunate.

Warning Signs That We Should Prepare For The Worst

The warning signs are all around us.  All we have to do is open up our eyes and look at them.  Almost every single day there are more prominent voices in the financial world telling us that a massive economic crisis is coming and that we need to prepare for the worst.  On Wednesday, it was the World Bank itself that issued a very chilling warning.  In an absolutely startling report, the World Bank revised GDP growth estimates for 2012 downward very sharply, warned that Europe could be on the verge of a devastating financial crisis, and declared that the rest of the world better “prepare for the worst.”  You would expect to hear this kind of thing on The Economic Collapse Blog, but this is not the kind of language that you would normally expect to hear from the stuffed suits at the World Bank.  Obviously things have gotten bad enough that nobody is even really trying to deny it anymore.  Andrew Burns, the lead author of the report, said that if the sovereign debt crisis gets even worse we could be looking at an economic crisis that could be even worse than the last one: “An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09.”  Burns also stated that the “importance of contingency planning cannot be stressed enough.”  In other words, Burns is saying that it is time to prepare for the worst.  So are you ready?

But of course it isn’t just the World Bank that is warning about these things.  The chorus of voices that is warning about the next great financial crisis just seems to grow by the day.

Some of these voices were profiled in a Bloomberg article the other day entitled “Apocalypse How? Dire ’12 Forecasts“.  The following is just a sampling of quotes from that article….

-John Mauldin, president of Millennium Wave Advisors: “We’ve got a cancer. That cancer is debt”

-Mark Spitznagel of Universa Investments: “Too much malinvestment has been kept alive, and history shows an inevitable wipeout, which started in 2000.”

-Michael Panzner of Financial Armageddon: “The fundamental outlook is even worse now than it was a few weeks ago, given (the lack of positive) developments in Europe and growing evidence that the economies of major countries around the world are deteriorating fast.”

If you have time, you should go check out the rest of that article.  It really is fascinating.

When this crisis is over, all sorts of people are going to be running around claiming that they predicted it.  But it does not take a genius to see what is coming.  All you have to do is open up your eyes and look at the flashing red warning signs.

So what should we all be looking for next?

March 20th is a key date to keep your eye on.  That is the day when Greece will either makes its 14.5 billion euro bond payment or it will default.

Greece does not have a prayer of making that payment without help.  If Greece can convince the EU and the IMF to release the next scheduled bailout payment and if Greece can reach a satisfactory deal with private bondholders, then the coming Greek default might be “orderly”.  But if something goes wrong, the coming Greek default might be quite “disorderly”.

At this point, almost everyone in the financial world is anticipating a Greek default of one form or another….

-Edward Parker, the managing director for Fitch’s sovereign and supranational group in Europe, the Middle East and Africa, recently declared that a Greek default is inevitable….

“It is going to happen. Greece is insolvent so it will default.”

-Moritz Kraemer, the head of S&P’s European sovereign ratings unit, made the following statement on Bloomberg Television on Monday:

“Greece will default very shortly. Whether there will be a solution at the end of the current rocky negotiations I cannot say.”

-Richard McGuire, a strategist at Dutch bank Rabobank, was recently quoted by CNBC as saying the following….

“People often ask if Greece is going to default which … is a misnomer because Greece is (already) defaulting”

-Diane Swonk, the chief economist at Mesirow Financial in Chicago, says that the default by Greece will probably be an “orderly” one but that the situation could change at any moment….

“It appears at the moment that the market is accepting a Greek default as inevitable, and it will be an orderly default. But that can change on a dime.”

But whether there is a default or not, the reality is that Greece is already experiencing a full-blown economic depression.  In Greece, 20 percent of all retail stores have already shut down.  The unemployment rate for those under the age of 24 is now at 39 percent.  Large numbers of Greeks are trying to get themselves and their money out of the country while they still can.

Pessimism regarding Greece is at an all-time high.  Michael Fuchs, the deputy leader of Angela Merkel’s political party, recently made the following statement….

“I don’t think that Greece, in its current condition, can be saved.”

But of course Greece is not the only declining economy in Europe by a long shot.

Italy has a much larger economy, and if Italy totally collapses it will be an absolute nightmare for the entire globe.

Right now, the Bank of Italy is forecasting a significant recession for the Italian economy in 2012.  The following is from a statement that Bank of Italy has just released….

“The uncertainty that surrounds the medium-term perspectives of the Italian economy … are extraordinarily high and are directly linked to the evolution of the eurozone debt crisis”

Italy’s youth unemployment rate has hit the highest level ever, and nearly all sectors of the Italian economy are showing signs of slowing down.

Plus there is the looming problem of Italian debt.  As I wrote about yesterday, when you add the maturing debt that the Italian government must roll over in 2012 to their projected budget deficit, it comes to 23.1 percent of Italy’s GDP.

Originally it was hoped that the economic problems in Europe could be contained to just a few countries.  But now it has become clear that is just not going to happen.

Trends forecaster Gerald Celente recently explained to ABC Australia that much of Europe is already essentially experiencing an economic depression….

“If you live in Greece, you’re in a depression; if you live in Spain, you’re in a depression; if you live in Portugal or Ireland, you’re in a depression,” Celente said. “If you live in Lithuania, you’re running to the bank to get your money out of the bank as the bank runs go on. It’s a depression. Hungary, there’s a depression, and much of Eastern Europe, Romania, Bulgaria. And there are a lot of depressions going on [already].”

The troubling news out of Europe just seems to keep coming in waves.  Here are some more recent examples….

-Manufacturing activity in the euro zone has fallen for five months in a row.

-Germany’s economy actually contracted during the 4th quarter of 2011.

-It is being reported that the Spanish economy contracted during the 4th quarter of 2011.

-Bad loans in Spain recently hit a 17-year high and the unemployment rate is at a 15-year high.

So will all of this economic trouble eventually spread to the United States?

Of course it will.

The global economy is more interconnected today than ever.  Back in 2008 the financial crisis that started on Wall Street ended up devastating economies all over the planet.  The same thing will happen during this next great financial crisis.

Only this time the U.S. is in a much weaker position.  The U.S. debt problem has gotten much worse since the last crisis.

During 2008, our national debt crossed the 10 trillion dollar mark.  Less than 4 years later, we have crossed the 15 trillion dollar mark.

So what are we going to do the next time large numbers of banks fail and unemployment skyrockets?

Where are we going to get the money to bail out all of those banks and to take care of all of those newly unemployed people?

Some people say that socialism is the answer, but the truth is that we are already a socialist welfare state.  If you can believe it, nearly half of all Americans live in a household that receives some form of financial benefits from the U.S. government.

During the next great crisis, the number of people that are dependent on the government will go even higher.

If you don’t want to end up dependent on the government, you should heed the warning signs and you should use this time to prepare for the hard times that are coming.

When even the World Bank tells us to hope for the best but to prepare for the worst, you know that it is late in the game.

Unfortunately, the vast majority of people out there only believe what they want to believe.  They don’t want to believe that a great economic crisis is coming, and so when it does happen they are going to be absolutely blindsided by it.

Ack! They Are Actually Going To Let Greece Default!

I wish that I had an “aha moment” to share with you today, but instead all I have is an “ack moment” to share.  As I was analyzing all of the info coming out of Europe in recent days, I came to the following realization: “Ack! They are actually going to let Greece default!”  The only question is whether it is going to be an orderly default or a disorderly default.  Of course the EU (led by Germany) could save Greece financially if it wanted to.  But Germany has decided against that course of action.  Many in the German government are sick and tired of pouring bailouts into Greece and then watching Greek politicians fail to fully implement the austerity measures that were agreed upon.  At this point a lot of German politicians are talking as if a Greek default is a foregone conclusion.   For example, Michael Fuchs, the deputy leader of Angela Merkel’s political party, recently made the following statement: “I don’t think that Greece, in its current condition, can be saved.”  But that is not entirely accurate.  Greece could be saved, but the Germans don’t want to make the deep financial sacrifices necessary to save Greece.  So instead they are going to let Greece default.

Many prominent voices in the financial world that have been watching all of this play out are now openly declaring the Greece is about to default.  Moritz Kraemer, the head of S&P’s European sovereign ratings unit, made the following statement on Bloomberg Television on Monday: “Greece will default very shortly. Whether there will be a solution at the end of the current rocky negotiations I cannot say.”

You might want to go back and read that again.

One of the top officials at one of the top credit rating agencies in the world publicly declared on television that “Greece will default very shortly.”

That should chill you to your bones.

If the EU allows Greece to default, that would be a signal to investors that the EU would allow Italy, Spain and Portugal to all default someday too.

Confidence in the bonds of those countries would disintegrate and bond yields would go through the roof.

Right now, confidence in government debt is one of the things holding up the fragile global financial system.  Governments must be able to borrow gigantic piles of very cheap money for the system to keep going, and once confidence is gone it is going to be incredibly difficult to rebuild it.

That is why a Greek default (whether orderly or disorderly) is so dangerous.  Investors all over the world would be wondering who is next.

At the end of last week, negotiations between the Greek government and private holders of Greek debt broke down.  Negotiations are scheduled to resume Wednesday, and there is a lot riding on them.

The Greek government desperately needs private bondholders to agree to accept a “voluntary haircut” of 50% or more.  Not that such a “haircut” will enable the Greek government to avoid a default.  It would just enable them to kick the can down the road a little farther.

But if Greece is able to get a 50% haircut from private investors, then why shouldn’t Italy, Spain, Portugal and Ireland all get one?

Once you start playing the haircut game, it is hard to stop it and it rapidly erodes confidence in the financial system.

This point was beautifully made in a recent article by John Mauldin….

So our problem country goes to its lenders and says, “We think you should share our pain. We are only going to pay you back 50% of what we owe you, and you must let us pay a 4% interest rate and pay you over a longer period. We think we can do that. Oh, and give us some more money in the meantime. And if you refuse, we won’t pay you anything and you will all have a banking crisis. Thanks for everything.”

The difficult is that if our problem country A gets to cut its debt by 50%, what about problem countries B, C, and D? Do they get the same deal? Why would voters in one country expect any less, if you agree to such terms for the first country?

But if Greece is able to negotiate an “orderly default” with private bondholders, that would be a lot better than a “disorderly default”.  A disorderly default would cause mass panic throughout the entire global financial system.

One key moment is coming up in March.  In March, 14 billion euros of Greek debt is scheduled to come due.  If Greece does not receive the next scheduled bailout payment, Greece would default at that time.

But the EU, the ECB and the IMF are not sure they want to give Greece any more money.  There are a whole host of austerity measures that the Greek government agreed to that they have not implemented.

Since the Greeks have not fully honored their side of the deal, the “troika” is considering cutting off financial aid.  The following comes from the New York Times….

Officials from the so-called troika of foreign lenders to Greece — the European Central Bank, European Union and International Monetary Fund — have come to believe that the country has neither the ability nor the will to carry out the broad economic reforms it has promised in exchange for aid, people familiar with the talks say, and they say they are even prepared to withhold the next installment of aid in March.

But the austerity measures that Greece has implemented so far have pushed the Greek economy into a full-blown depression.  Greece is experiencing a complete and total economic collapse at this point.  The following comes from the New York Times….

Greece’s dire economic condition can hardly be overstated. After two years of tax increases and wage cuts, Greek civil servants have seen their income shrink by 40 percent since 2010, and private-sector workers have suffered as well. More than $75 billion has left the country as people move their savings abroad. Some 68,000 businesses closed in 2010, and another 53,000 — out of 300,000 still active — are said to be close to bankruptcy, according to a report issued in the fall by the Greek Co-Federation of Chambers of Commerce.

“It’s an implosion — it’s an endless sequence of implosions from bad to worse, to worse, to worse,” said Yanis Varoufakis, an economics professor at the University of Athens and commentator on the Greek economy. “There’s nothing to stop the Greek economy losing 60 percent of its G.D.P., given the path it is at.”

But Greece is not the only one in Europe with major economic problems.  The unemployment rate for those under the age of 25 in the EU is an astounding 22.7%.  And as I have written about previously, there are a whole host of signs that Europe is on the verge of a major recession.

Greece is just the canary in the coal mine.  The truth is that the entire European financial system is in danger of collapsing.

Today, it was announced that S&P has downgraded the European Financial Stability Facility.  It is pretty sad when even the European bailout fund is getting downgraded.

Of course most of you know what happened on Friday by now.  Very shortly after U.S. financial markets closed, S&P downgraded the credit ratings of nine different European nations.

Only four eurozone nations (Germany, Luxembourg, Finland, and the Netherlands) still have a AAA credit rating from S&P.

But even more importantly, the nightmarish decline of the euro is showing no signs of stopping.

Right now, the EUR/USD is down to 1.2650.  It is hard to believe how fast the EUR/USD has fallen, but if a major financial crisis erupts in Europe it is probably going to go down a whole lot more.

So what happens next?

Well, if there is a Greek default all hell will break loose in Europe.

But even if Greece does not default, the coming recession in Europe is going to put an incredible amount of strain on the eurozone.

Many have been speculating that Greece or Italy could be the first to leave the euro, but actually it may be the strongest members that exit first.

The number of prominent voices inside Germany that are calling for Germany to leave the euro continues to increase.

In addition, public opinion in Germany is rapidly turning against the euro.  One recent poll found that only 47 percent of Germans were glad that Germany joined the euro, and only 36 percent of Germans want “a more federal Europe”.

As this crisis continues to unfold, there will probably be even more “ack moments”.  European leaders have mismanaged this crisis very badly from the start, and there is no reason to believe that they are suddenly going to become much wiser.

Once again, it is important to emphasize the role that confidence plays in our financial system.  The entire global financial system runs on credit.  Banks and investors lend out money because they have confidence that they will be paid back.  When you take that confidence away, the system does not work.

Let us hope that the folks over in Europe understand this, because right now we are steamrolling toward a credit crunch that could potentially make 2008 look tame by comparison.

***Epilogue***

Now another of the three major credit rating agencies, Fitch, is publicly saying that Greece will default….

“It is going to happen. Greece is insolvent so it will default,” Edward Parker, Managing Director for Fitch’s Sovereign and Supranational Group in Europe, the Middle East and Africa told Reuters on the sidelines of a conference in the Swedish capital. “So in that sense it shouldn’t be a surprise to anyone.”

22 Signs That We Are On The Verge Of A Devastating Global Recession

2012 is shaping up to be a very tough year for the global economy.  All over the world there are signs that economic activity is significantly slowing down.  Many of these signs are detailed later on in this article.  But most people don’t understand what is happening because they don’t put all of the pieces together.  If you just look at one or two pieces of data, it may not seem that impressive.  But when you examine all of the pieces of evidence that we are on the verge of a devastating global recession all at once, it paints a very frightening picture.  Asia is slowing down, Europe is slowing down and there are lots of trouble signs for the U.S. economy.  It has gotten to a point where the global debt crisis is almost ready to boil over, and nobody is quite sure what is going to happen next.  The last global recession was absolutely nightmarish, and we should all hope that we don’t see another one like that any time soon.  Unfortunately, things do not look good at this point.

The following are 22 signs that we are on the verge of a devastating global recession….

#1 On Thursday it was announced that U.S. jobless claims had soared to a six-week high.

#2 Hostess Brands, the maker of Twinkies and Wonder Bread, has filed for bankruptcy protection.

#3 Sears recently announced that somewhere between 100 and 120 Sears and Kmart stores will be closing, and Sears stock has fallen nearly 60% in just the past year.

#4 Over the past 12 months, dozens of prominent retailers have closed stores all over America, and one consulting firm is projecting that there will be more than 5,000 more store closings in 2012.

#5 Richard Bove, an analyst at Rochdale Securities, is projecting that the global financial industry will lose approximately 150,000 jobs over the next 12 to 18 months.

#6 Investors are pulling money out of the stock market at a rapid pace right now.  In fact, as an article posted on CNBC recently noted, investors pulled more money out of mutual funds than they put into mutual funds for 9 weeks in a row.  Are there some people out there that are quietly repositioning their money for tough times ahead?….

Investors yanked money out of U.S. equity mutual funds for a ninth-consecutive week despite a bullish 2012 outlook from Wall Street and a December rally that’s carried over into the New Year.

#7 There are signs that the Chinese economy is seriously slowing down.  The following comes from a recent article in the Guardian….

Growth had slowed to an annual rate of 1.5% in the second and third quarters of 2011, below the “stall speed” that historically led to recession.

#8 The Bank of Japan says that the economic recovery in that country “has paused“.

#9 Manufacturing activity in the euro zone has fallen for five months in a row.

#10 Germany’s economy actually contracted during the 4th quarter of 2011.  At this point many economists believe that Germany is already experiencing a recession.

#11 According to a recent article by Bloomberg, it is being projected that the French economy is heading into a recession….

The French economy will shrink this quarter and next, suggesting the nation is in a recession as investment and consumer spending stagnate, national statistics office Insee said.

#12 There are a multitude of statistics that indicate that the UK economy is definitely slowing down.

#13 The credit ratings of Italy, Spain, Portugal, France and Austria all just got downgraded.

#14 It is being reported that the Spanish economy contracted during the 4th quarter of 2011.

#15 Bad loans in Spain recently hit a 17-year high and the unemployment rate is at a 15-year high.

#16 According to a recent article in the Telegraph, the Italian government is forecasting that there will be a recession for the Italian economy in 2012….

The Italian government predicts GDP will contract 0.4pc next year, but many economists fear the figure is optimistic.

“We can say without mincing words that we have already slipped into recession,” said Intesa Sanpaolo analyst Paolo Mameli. “We expect GDP to keep contracting for the next 3-4 quarters.”

#17 Italy’s youth unemployment rate has hit the highest level ever.

#18 The unemployment rate in Greece for those under the age of 24 is now at 39 percent.

#19 Greece is already experiencing a full-blown economic depression.  About a third of the country is now living in poverty and extreme medicine shortages are being reported.  Things have gotten so bad that entire families are being ripped apart.  According to the Daily Mail, hundreds of Greek children are being abandoned because the economy has gotten so bad that their parents simply cannot afford to take care of them anymore.  The note that one mother left with her child was absolutely heartbreaking….

One mother, it said, ran away after handing over her two-year-old daughter Natasha.

Four-year-old Anna was found by a teacher clutching a note that read: ‘I will not be coming to pick up Anna today because I cannot afford to look after her. Please take good care of her. Sorry.’

#20 In Greece, large numbers of people are simply giving up on life.  Sadly, the number of suicides in Greece has increased by 40 percent in just the past year.

#21 In many European countries, the money supply continues to contract rapidly.  The following comes from a recent article in the Telegraph….

Simon Ward from Henderson Global Investors said “narrow” M1 money – which includes cash and overnight deposits, and signals short-term spending plans – shows an alarming split between North and South.

While real M1 deposits are still holding up in the German bloc, the rate of fall over the last six months (annualised) has been 20.7pc in Greece, 16.3pc in Portugal, 11.8pc in Ireland, and 8.1pc in Spain, and 6.7pc in Italy. The pace of decline in Italy has been accelerating, partly due to capital flight. “This rate of contraction is greater than in early 2008 and implies an even deeper recession, both for Italy and the whole periphery,” said Mr Ward.

#22 The major industrialized nations of the world must roll over trillions upon trillions of dollars in debt during 2012.  At a time when credit is becoming much tighter, this is going to be quite a challenge.  The following list compiled by Bloomberg shows the amount of debt that some large nations must roll over in 2012….

Japan: 3,000 billion
U.S.: 2,783 billion
Italy: 428 billion
France: 367 billion
Germany: 285 billion
Canada: 221 billion
Brazil: 169 billion
U.K.: 165 billion
China: 121 billion
India: 57 billion
Russia: 13 billion

Keep in mind that those numbers do not include any new borrowing.  Those are just old debts that must be refinanced.

As I mentioned at the top of this article, things do not look good.

The last thing that we need is another devastating global recession.

As I wrote about yesterday, the U.S. economy is in the midst of a nightmarish long-term decline.  The last major global recession helped to significantly accelerate that decline.

So what will happen if this next global recession is worse than the last one?

Sadly, the people that will get hurt the most by another recession will not be the wealthy.

The people that will get hurt the most will be the poor and the middle class.

So what should all of us be doing about this?

We should use the time during this “calm before the storm” to prepare for the hard times that are coming.

As always, let us hope for the best and let us prepare for the worst.

But things certainly do not look promising for the global economy in 2012.

Mega Fail: 17 Signs That The European Financial System Is Heading For An Implosion Of Historic Proportions

What happens when you attempt a cold shutdown of one of the biggest debt spirals that the world has ever seen?  Well, we are about to find out.  The politicians in Europe have decided that they are going to “take their medicine” and put strict limits on budget deficits.  They have also decided that the European Central Bank is not going to engage in reckless money printing to “paper over” the debts of troubled nations.  This may all sound wonderful to many of you, but the reality is that there is always a tremendous amount of pain whenever a massive debt spiral is interrupted.  Just look at what happened to Greece.  Greece was forced to raise taxes and implement brutal austerity measures.  That caused the economy to slow down and tax revenues to decline and so government debt figures did not improve as much as anticipated.  So Greece was forced to implement even more brutal austerity measures.  Well, that caused the economy to slow down even more and tax revenues declined again.  In Greece this cycle has been repeated several times and now Greece is experiencing a full-blown economic depression.  100,000 businesses have closed and a third of the population is living in poverty.  But now Germany and France intend to impose the “Greek solution” on the rest of Europe.  This is going to create the conditions needed for a “perfect storm” to develop and it means that the European financial system is heading for an implosion of historic proportions.

The easiest way to deal with a debt spiral is to let it keep going and going.  That is what the United States has done.  Sure, “kicking the can down the road” makes the crisis much worse in the long run, but bringing the pain into the present is not a lot of fun either.

Europe has decided to do something that is unprecedented in the post-World War II era.  They have decided to put very strict limits on budget deficits and to impose tough sanctions on any nations that break the rules.  They have also decided that they are not going to allow the European Central Bank to fund the debts of troubled nations with reckless money printing.

Without a doubt, this is a German solution for a German-dominated Europe.  Germany does not want to pay for the debt mistakes of other EU nations, and so they are shoving bitter austerity down the throats of those that have gotten into too much debt.

But this solution is not going to be implemented without a massive amount of pain.

In fact, this solution is going to make a massive financial collapse much more likely.  The following are 17 signs that the European financial system is heading for an implosion of historic proportions….

#1 As noted above, when you reduce government spending you also slow down the economy.  We have already seen what brutal austerity has done to Greece – 100,000 businesses have shut down, a third of the population is living in poverty and there is rioting in the streets.  Now that brand of brutal austerity is going to be imposed in almost every single nation in Europe.

#2 As the economy slows down in Europe, unemployment will rise.  There are already 10 different European nations that have an “official” unemployment rate of over 10 percent and the next recession has not even officially started yet.

#3 Before it is all said and done, the EU nations that are drowning in debt will likely need trillions of euros in bailout money just to survive.  But at this point Germany and the other wealthy nations of northern Europe are sick and tired of bailouts and do not plan to hand over trillions of euros.

#4 The European Central Bank could theoretically print up trillions of euros and buy up massive amounts of European sovereign debt, but this would go against existing treaties and most of the major politicians in Europe are steadfastly against this right now.  But without such intervention it is hard to see how the ECB will be able to keep bond yields from absolutely skyrocketing for long.  In fact, without massive ECB intervention it is hard to see how the eurozone is going to be able to stay together at all.  Graeme Leach, the chief economist at the Institute of Directors, said the following recently….

“Unless the ECB begins to operate as a sovereign lender of last resort function, with massive purchases of eurozone public debt, the inexorable logic is that the eurozone will break up.”

#5 European leaders are hoping that the new treaty that was just agreed to will be ratified by the end of the summer.  In reality, it will probably take much longer than that.  German Chancellor Angela Merkel has made it clear that the solution to this debt crisis is going to take a long time to implement….

“It’s a process, and this process will take years.”

Unfortunately, Europe does not have years.  Europe is rapidly running out of time.  A massive financial crisis is steamrolling right at them and they need solutions right now.

#6 Sadly, the cold, hard reality of the matter is that none of the fundamental problems that Europe is facing were fixed by this recent “agreement” as Ambrose Evans-Pritchard recently noted in one of his columns….

There is no shared debt issuance, no fiscal transfers, no move to an EU Treasury, no banking licence for the ESM rescue fund, and no change in the mandate of the European Central Bank.

In short, there is no breakthrough of any kind that will convince Asian investors that this monetary union has viable governance or even a future.

Germany has kept the focus exclusively on fiscal deficits even though everybody must understand by now that this crisis was not caused by fiscal deficits (except in the case of Greece). Spain and Ireland were in surplus, and Italy had a primary surplus.

#7 Nobody wants to lend to European banks right now.  Everyone knows that there are dozens of European banks in danger of failing, and nobody wants to throw any more money into those black holes.  The U.S. Federal Reserve and the European Central Bank have been lending them money, but a lot of European banks are already starting to run out of “acceptable forms of collateral” for those loans as one Australian news source recently explained….

“If anyone thinks things are getting better, they simply don’t understand how severe the problems are,” a London executive at a global bank said. “A major bank could fail within weeks.”

Others said many continental banks, including French, Italian and Spanish lenders, were close to running out of the acceptable forms of collateral, such as US Treasury bonds, that could be used to finance short-term loans.

Some have been forced to lend out their gold reserves to maintain access to US dollar funding.

So will the U.S. Federal Reserve and the European Central Bank keep lending them money once they are out of acceptable collateral?

If not, we could start to see banks fail in rapid succession.

Charles Wyplosz, a professor of international economics at Geneva’s Graduate Institute, is absolutely certain that we are going to see some major European banks collapse….

“Banks will collapse, including possibly a number of French banks that are very exposed to Greece, Portugal, Italy and Spain.”

#8 Not only does nobody want to lend money to them, major banks all over Europe are also dramatically cutting back on lending to consumers and businesses as they attempt to meet new capital-adequacy requirements by next June.

According to renowned financial journalist Ambrose Evans-Pritchard, European banks need to reduce the amount of lending on their books by about 7 trillion dollars in order to get down to safe levels….

Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade.

When nobody wants to lend to the banks, and when the banks severely cut back on lending to others, that is called a “credit crunch”.  In such an environment, it is incredibly difficult to avoid a major recession.

#9 European banks are absolutely overloaded with “toxic assets” that they are desperate to get rid of.  Just as we saw with U.S. banks back in 2008, major European banks are busy trying to unload mountains of worthless assets that have a book value of trillions of euros.  Unfortunately for the banks, virtually nobody wants to buy them.

#10 European bond yields are still incredibly high even though the European Central Bank has spent over 274 billion dollars buying up European government bonds.

Up until now, the European Central Bank has been taking money out of the system (by taking deposits or by selling assets for example) whenever it injects new money into the system by buying bonds.  That makes this different from the quantitative easing that the U.S. Federal Reserve has done.  But at some point the European Central Bank is going to run out of ways to take money out of the system, and when that happens either the Germans will have to allow the ECB to print money out of thin air to buy bonds with or we will finally see the market determine the true value of European government bonds.

#11 Bond yields are going to become even more important in 2012, because huge mountains of European sovereign debt are scheduled to be rolled over next year.  For example, Italy must roll over approximately 20 percent of its entire sovereign debt during 2012.

#12 Once the new treaty is ratified, eurozone governments will lose the power to respond to a major recession by dramatically increasing government spending.  So if the governments of Europe cannot spend more money in response to the coming financial crisis, and if the ECB cannot print more money in response to the coming financial crisis, then what is going to keep the coming recession from turning into a full-blown depression?

#13 Credit rating agencies are warning that more credit downgrades may be coming in Europe. For example, Moody’s recently stated the following….

“While our central scenario remains that the euro area will be preserved without further widespread defaults, shocks likely to materialise even under this ‘positive’ scenario carry negative credit and rating implications in the coming months. And the longer the incremental approach to policy persists, the greater the likelihood of more severe scenarios, including those involving multiple defaults by euro area countries and those additionally involving exits from the euro area.”

#14 S&P has put 15 members of the eurozone (including Germany) on review for a possible credit downgrade.

#15 The stock prices of many major European banks are in the process of collapsing.  If you doubt this, just check out the charts in this article.

#16 Bank runs have begun in some parts of Europe.  For example, a recent article posted on Yahoo News described what has been going on in Latvia….

Latvia’s largest bank scrambled Monday to head off a run among depositors who were gripped by rumours of the bank’s imminent ruin.

Weekend rumours that Swedbank was facing legal and liquidity problems in Estonia and Sweden sent thousands of Latvians to bank machines on Sunday, with some lines reaching as many as 50 people.

The Greek banking system is literally on the verge of collapse.  According to a recent Der Spiegel article, the run on Greek banks is rapidly accelerating….

He means that the outflow of funds from Greek bank accounts has been accelerating rapidly. At the start of 2010, savings and time deposits held by private households in Greece totalled €237.7 billion — by the end of 2011, they had fallen by €49 billion. Since then, the decline has been gaining momentum. Savings fell by a further €5.4 billion in September and by an estimated €8.5 billion in October — the biggest monthly outflow of funds since the start of the debt crisis in late 2009.

#17 There are already signs that European economic activisty (as well as global economic activity) is really starting to slow down.  Just consider the following statistics from a recent article by Stephen Lendman….

In November, French business confidence fell for the eighth consecutive month. In October, Japanese machinery orders dropped 6.9%, following an 8.2% plunge in September.

South Africa just reported a 5.6% drop in manufacturing activity. Britain recorded a 0.7% decline. China’s October exports fell 1.7% after dropping 3.8% in September.

Korea’s exports are down three consecutive months. Singapore’s were off in September and October. Indonesia’s plunged 8.5% in October after slipping 2% in September. India’s imploded 18.3% after being flat in September.

Are you starting to get the picture?

Europe is in a massive amount of trouble.

The equation is simple….

Brutal austerity + toxic levels of government debt + rising bond yields + a lack of confidence in the financial system + banks that are massively overleveraged + a massive credit crunch = A financial implosion of historic proportions

Unless something truly dramatic happens, the economy of Europe is a dead duck.

There is no way that Europe is going to be able to substantially reduce the flow of money coming from national governments and substantially reduce the flow of money coming from the banks and still be able to avoid a major recession.

Look, I want it to be very clear that I am in no way advocating government debt in this article.  It is just that under the debt-based monetary paradigm that we are all operating under, there is no way that you can dramatically reduce government spending without experiencing a whole lot of pain.

An economic “perfect storm” is developing in Europe.  All of the things that need to happen for a major recession to occur are falling into place.

So does anyone out there disagree with me?  Does anyone think that Europe is going to be just fine?

Please feel free to leave a comment with your thoughts below….

22 Reasons Why We Could See An Economic Collapse In Europe In 2012

Will 2012 be the year that we see an economic collapse in Europe?  Before you dismiss the title of this article as “alarmist”, read the facts listed in the rest of this article first.  Over the past several months, there has been an astonishing loss of confidence in the European financial system.  Right now, virtually nobody wants to loan money to financially troubled nations in the EU and virtually nobody wants to lend money to major European banks.  Remember, one of the primary reasons for the financial crisis of 2008 was a major credit crunch that happened here in the United States.  This burgeoning credit crunch in Europe is just one element of a “perfect storm” that is rapidly coming together as we get ready to go into 2012.  The signs of trouble are everywhere.  All over Europe, governments are implementing austerity measures and dramatically cutting back on spending.  European banks are substantially cutting back on lending as they seek to meet new capital requirements that are being imposed upon them.  Meanwhile, bond yields are going through the roof all over Europe as investors lose confidence and demand much higher returns for investing in European debt.  It has become clear that without a miracle happening, quite a few European nations and a significant number of European banks are not going to be able to get the funding that they need from the market in 2012.  The only thing that is going to avert a complete and total financial meltdown in Europe is dramatic action, but right now European leaders are so busy squabbling with each other that a bold plan seems out of the question.

The following are 22 reasons why we could see an economic collapse in Europe in 2012….

#1 Germany could rescue the rest of Europe, but that would take an unprecedented financial commitment, and the German people do not have the stomach for that.  It has been estimated that it would cost Germany 7 percent of GDP over several years in order to sufficiently bail out the other financially troubled EU nations.  Such an amount would far surpass the incredibly oppressive reparations that Germany was forced to pay out in the aftermath of World War I.

A host of recent surveys has shown that the German people are steadfastly against bailing out the rest of Europe.  For example, according to one recent poll 57 percent of the German people are against the creation of eurobonds.

At this point, German politicians are firmly opposed to any measure that would place an inordinate burden on German taxpayers, so unless this changes that means that Europe is not going to be saved from within.

#2 The United States could rescue Europe, but the Obama administration knows that it would be really tough to sell that to the American people during an election season.  The following is what White House Press Secretary Jay Carney said today about the potential for a bailout of Europe by the United States….

“This is something they need to solve and they have the capacity to solve, both financial capacity and political will”

Carney also said that the Obama administration does not plan to commit any “additional resources” to rescuing Europe….

“We do not in any way believe that additional resources are required from the United States and from American taxpayers.”

#3 Right now, banks all over Europe are in deleveraging mode as they attempt to meet new capital-adequacy requirements by next June.

According to renowned financial journalist Ambrose Evans-Pritchard, European banks need to reduce the amount of lending on their books by about 7 trillion dollars in order to get down to safe levels….

Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade.

So what does that mean?

It means that European banks are going to be getting really, really stingy with loans.

That means that it is going to become really hard to buy a home or expand a business in Europe, and that means that the economy of Europe is going to slow down substantially.

#4 European banks are overloaded with “toxic assets” that they are desperate to get rid of.  Just like we saw with U.S. banks back in 2008, major European banks are busy trying to unload mountains of worthless assets that have a book value of trillions of euros, but virtually nobody wants to buy them.

#5 Government austerity programs are now being implemented all over Europe.  But government austerity programs can have very negative economic effects.  For example, we have already seen what government austerity has done to Greece. 100,000 businesses have closed and a third of the population is now living in poverty.

But now governments all over Europe have decided that austerity is the way to go.  The following comes from a recent article in the Economist….

France’s budget plans are close to being agreed on; further cuts are likely but will be delayed until after the elections in spring. Italy has yet to vote through a much-revised package of cuts. Spain’s incoming government has promised further spending cuts, especially in regional outlays, in order to meet deficit targets agreed with Brussels.

#6 The amount of debt owed by some of these European nations is so large that it is difficult to comprehend.  For example, Greece, Portugal, Ireland, Italy and Spain owe the rest of the world about 3 trillion euros combined.

So what will massive government austerity do to troubled nations such as Spain, Portugal, Ireland and Italy?  Ambrose Evans-Pritchard is very concerned about what even more joblessness will mean for many of those countries….

Even today, the jobless rate for youth is near 10pc in Japan. It is already 46pc in Spain, 43pc in Greece, 32pc in Ireland, and 27pc in Italy. We will discover over time what yet more debt deleveraging will do to these societies.

#7 Europe was able to bail out Greece and Ireland, but there is no way that Italy will be able to be rescued if they require a full-blown bailout.

Unfortunately, Italy is in the midst of a massive financial meltdown as you read this.  The yield on two year Italian bonds is now about double what it was for most of the summer.  There is no way that is sustainable.

It would be hard to overstate how much of a crisis Italy represents.  The following is how former hedge fund manager Bruce Krasting recently described the current situation….

At this point there is zero possibility that Italy can refinance any portion of its $300b of 2012 maturing debt. If there is anyone at the table who still thinks that Italy can pull off a miracle, they are wrong. I’m certain that the finance guys at the ECB and Italian CB understand this. I repeat, there is a zero chance for a market solution for Italy.

Krasting believes that either Italy gets a gigantic mountain of cash from somewhere or they will default within six months and that will mean the start of a global depression….

I think the Italian story is make or break. Either this gets fixed or Italy defaults in less than six months. The default option is not really an option that policy makers would consider. If Italy can’t make it, then there will be a very big crashing sound. It would end up taking out most of the global lenders, a fair number of countries would follow into Italy’s vortex. In my opinion a default by Italy is certain to bring a global depression; one that would take many years to crawl out of.

#8 An Italian default may be closer than most people think.  As the Telegraph recently reported, just to refinance existing debt, the Italian government must sell more than 30 billion euros worth of new bonds by the end of January….

Italy’s new government will have to sell more than EURO 30 billion of new bonds by the end of January to refinance its debts. Analysts say there is no guarantee that investors will buy all of those bonds, which could force Italy to default.

The Italian government yesterday said that in talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Prime Minister Mario Monti had agreed that an Italian collapse “would inevitably be the end of the euro.”

#9 European nations other than just the “PIIGS” are getting into an increasing amount of trouble.  For example, S&P recently slashed the credit rating of Belgium to AA.

#10 Credit downgrades are coming fast and furious all over Europe now.  At this point it seems like we see a new downgrade almost every single week.  Some nations have been downgraded several times.  For instance, Fitch has downgraded the credit rating of Portugal again.  At this point it is being projected that Portuguese GDP will shrink by about 3 percent in 2012.

#11 The financial collapse of Hungary didn’t make many headlines in the United States, but it should have.  Moody’s has cut the credit rating of Hungarian debt to junk status, and Hungary has now submitted a formal request to the EU and the IMF for a bailout.

#12 Even faith in German debt seems to be wavering. Last week, Germany had “one of its worst bond auctions ever“.

#13 German banks are also starting to show signs of weakness.  The other day, Moody’s downgraded the ratings of 10 major German banks.

#14 As the Telegraph recently reported, the British government is now making plans based on the assumption that a collapse of the euro is only “just a matter of time”….

As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.

Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis.

The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.

A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.

#15 The EFSF was supposed to help bring some stability to the situation, but the truth is that the EFSF is already a bad joke.  It has been reported that the EFSF has already been forced to buy up huge numbers of its own bonds.

#16 Unfortunately, it looks like a run on the banks has already begun in Europe.  The following comes from a recent article in The Economist….

“We are starting to witness signs that corporates are withdrawing deposits from banks in Spain, Italy, France and Belgium,” an analyst at Citi Group wrote in a recent report. “This is a worrying development.”

#17 Confidence in European banks has been absolutely shattered and virtually nobody wants to lend them money right now.

The following is a short excerpt from a recent CNBC article….

Money-market funds in the United States have quite dramatically slammed shut their lending windows to European banks. According to the Economist, Fitch estimates U.S. money market funds have withdrawn 42 percent of their money from European banks in general.

And for France that number is even higher — 69 percent. European money-market funds are also getting in on the act.

#18 There are dozens of major European banks that are in danger of failing.  The reality is that most major European banks are leveraged to the hilt and are massively exposed to sovereign debt.  Before it fell in 2008, Lehman Brothers was leveraged 31 to 1.  Today, major German banks are leveraged 32 to 1, and those banks are currently holding a massive amount of European sovereign debt.

#19 According to the New York Times, the economy of the EU is already projected to shrink slightly next year, and this doesn’t even take into account what is going to happen in the event of a total financial collapse.

#20 There are already signs that the European economy is seriously slowing down.  Industrial orders in the eurozone declined by 6.4 percent during September.  That was the largest decline that we have seen since the midst of the financial crisis in 2008.

#21 Panic and fear are everywhere in Europe right now.  The European Commission’s index of consumer confidence has declined for five months in a row.

#22 European leaders are really busy fighting with each other and a true consensus on how to solve the current problems seems way off at the moment.  The following is how the Express recently described rising tensions between German and British leaders….

The German Chancellor rejected outright Mr Cameron’s opposition to a new EU-wide financial tax that would have a devastating impact on the City of London.

And she refused to be persuaded by his call for the European Central Bank to support the euro. Money markets took a dip after their failure to agree.

Are you starting to get the picture?

The European financial system is in a massive amount of trouble, and when it melts down the entire globe is going to be shaken.

But it isn’t just me that is saying this.  As I mentioned in a previous article, there are huge numbers of respected economists all over the globe that are now saying that Europe is on the verge of collapse.

For example, just check out what Credit Suisse is saying about the situation in Europe….

“We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks.”

Many European leaders are promoting much deeper integration and a “European superstate” as the answer to these problems, but it would take years to implement changes that drastic, and Europe does not have that kind of time.

If Europe experiences a massive economic collapse and a prolonged depression, it may seem like “the end of the world” to some people, but things will eventually stabilize.

A lot of people out there seem to think that the global economy is going to go from its present state to “Mad Max” in a matter of weeks.  Well, that is just not going to happen.  The coming troubles in Europe will just be another “wave” in the ongoing economic collapse of the western world.  There will be other “waves” after that.

Of course this current sovereign debt crisis could be entirely averted if the countries of the western world would just shut down their central banks and start issuing debt-free money.

The truth is that there is no reason why any sovereign nation on earth ever has to go a penny into debt to anyone.  If a nation is truly sovereign, then the government has the right to issue all of the debt-free money that it wants.  Yes, inflation would always be a potential danger in such a system (just as it is under central banking), but debt-free money would mean that government debt problems would be a thing of the past.

Unfortunately, most of the countries of the world operate under a system where more government debt is created when more currency is created.  The inevitable result of such a system is what we are witnessing now.  At this point, nearly the entire western world is drowning in debt.

There are alternatives to our current system.  But nobody in the mainstream media ever talks about them.

So instead of focusing on truly creative ways to deal with our current problems, we are all going to experience the bitter pain of the coming economic collapse instead.

Things did not have to turn out this way.

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